John oharenko, Building Capital Stacks in Today's Market

1. “BAD” DEAL
• $20 million refinance, full-
occupied retail center
• 100,000 ft.² , food and drug
anchored center
• Urban Infill location in major
Midwest market
CHALLENGES:
1. Aggressive Underwriting - maximum loan proceeds
with complete cash out of all equity and existing debt.
2. Tenancy - Health club, big-box electronics retailers,
non-reporting sales psf grocer.
3. Sponsorship – Pending legacy issues.

2. “GOOD” DEAL
• $50 million new
construction
• 200 units luxury, mid-
rise podium
• Infill location in major
Western sunbelt market
• Seasoned developer
CHALLENGES:
1. New construction - completion risk and high costs
2. Oversupply - Large supply of foreclosures
3. Funding - Very limited construction loan funds

3. “Good” Deal Capital Stack
CAPITAL STACK LEVERAGE (YIELD) UNDERWRITING
Construction Loan 60% (2.75%) Bank funded at 250 bps + Libor with 3-5 yr mini-perm.
Mezz Loan 15% (12%) 7% coupon rate with 12% IRR look back coterminous
w/Construction. No participation vs. Pref Equity.
JV Partner 12.25% (30%) 49/51% Pari Passu on net cash flow w/ 30% IRR, 40/60
thereafter. Project control limited (capital decisions.)
Sponsorship 12.75% (30%+) Full control and guarantees and recapture of land
profits before any reversionary profits.

4. CAPITAL STACK OPPORTUNITIES:
1. Shop the Stack – Lot’s of money, limited deals
2. Rates at the bottom – Moody’s Baa spreads
widening. Alternative investments and “floors”
3. Wraparound – Capture low rates and worry later